Ukraine’s Banking System and Banking Regulation

Banking systems different countries are their circulatory system in fact, because ensuring the movement of funds and serve the needs of the real and financial sectors of the economy. Many foreign companies and businessmen are interested in working in Ukraine, and the information about the banking system of Ukraine may be interesting for them.

Banking system of Ukraine is built on the principle of two-tiered. At the first level – the central bank – National Bank of Ukraine (NBU), which controls the banking system of Ukraine and all commercial banks are work on the basis of individual licenses with the permission and under the control of NBU. The main function of NBU is to ensure stability of the national currency, hryvnia (UAH). In addition, NBU has a task of maintaining stability in the banking system and price stability within the limits of their powers, control and management of foreign exchange reserves of Ukraine, regulation of the work of payment systems in Ukraine, other forms of banking regulation and supervision.

The second level of the banking system is represented by banks, which are directly involved in credit, deposit, settlement and cash services for legal entities and individuals. Currently in Ukraine there are 120 commercial banks, 40 of them – with foreign capital. Balance sheet footing of Ukrainian banks are estimated at 120 billion US dollars at the moment. However, about half of the deposits made in foreign currency, which is further evidence banking system is in the overexposure of the stability of the national currency.

Commercial banks are grouping to four groups of banks by criteria NBU as on 2016:
1. With the state share in the authorized capital (7 banks), which of 3 banks with 100% charter capital of the state (PJSC “Oschadbank”, PJSC “Ukreximbank”, PJSC “UGB”).
2. Banks with the participation of foreign banking groups (19 banks).
3. Banking group with assets of more than 0.5% of the banking system assets (13 banks).
4. Banking group with assets of less than 0.5% of the banking system assets (78 banks).

A significant number of small banks (2/3 of the total number) are indicate to a high proportion of oligopolization banking market and the complexity of competition in the Ukrainian banking market.

As a result the banking system again has damages resulting from political crisis in 2014 and the war in the east of Ukraine after several profitable years (2010-2013). An increase of number of administration pro tempore in commercial banks, banks began bankruptcy. At the same time investors – individuals are guarded against by the state because Ukraine has a Deposit Insurance Fund (covers deposits up to 200 thousand UAH per depositor in one bank). Legal persons having a deposit at the banks were in a much worse situation, since may file their claims against the bank only in the process and procedures of bank bankruptcy.

However, in terms of settlement and cash services Ukrainian banks have enough qualified and meet modern standards for speed and reliability of bank transfers, security, banking, etc. Almost all commercial banks have joined the system “Society of Worldwide Interbank Financial Telecommunications” (SWIFT), which allows active foreign economic activity Ukrainian enterprises. Also, most of the banks are members of payment systems Western Union, MoneyGram, etc., which enables to provide services to individuals with instant money transfer any or anywhere in the world where is the same bank-member.

Banking Regulation and Supervision in Ukraine is quite rigid and consistent with all modern requirements and trends. For example, at the present time almost all the banks are transparent in terms of the structure of shareholders of financial institutions, and to date, 98.7% of banks’ assets are in bank transparency, which are known, who is the owner. In fact, it is 100%, because the remaining 1.3% is the minority shareholders who own smaller share than is necessary for the disclosure and may not be disclosed. This is a fairly high rate compared with international practice.

Also, the National Bank of Ukraine has tough policy on capital buffers, refinancing, currency write-offs, monitors transactions subject to financial monitoring (particularly in terms of possible financing of terrorism, or structures associated with terrorist organizations so-called Donetsk and Luhansk People’s Republic). Most of the control and regulation functions are not visible to customers and banks do not create practically any difficulties for ordinary consumers of banking services.

Add up we can say that the Ukrainian banks, especially any of the top-20, can be safely used in business for cash management services. But we would not advise businesses to make large bank deposit in the coming years, and would suggest looking for other forms to invest free funds. And also businesses with large turnovers may work with several banks in order to avoid stopping business processes, if bank will be have problems in its work.

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